Closing the lending gap will help government and business thrive – Doug Criscitello

Doug Criscitello, Executive Director of MIT’s Center for Finance and Policy

Doug Criscitello, Executive Director of MIT’s Center for Finance and Policy

From The Hill

With taxpayers at risk for $20 trillion in loans and insured obligations, worth more than the five largest American bank companies combined, the United States government is essentially the largest financial institution in the world. Lending is a risky business as we learned during the last financial crisis. Government activities in this regard are no less dangerous, and perhaps more so, given public policy complexities that extend well beyond profit. Given a bleak fiscal outlook, policymakers may want to consider ways to reduce taxpayer exposure by fortifying financial institutions and financial technology companies with an enormous infusion of loan performance data that only it can provide.

Through a set of more than 100 programs largely initiated or expanded in response to the Great Depression, the Great Society programs of the 1960s, and the 2008 financial crisis, the government has provided over 100 million direct loans and guarantees for home ownership, higher education, business assistance, and a variety of other purposes. As the government has increasingly turned to credit programs to accomplish a diverse set of objectives, with its loan portfolio more than doubling since 2008, it is challenged to keep pace with an increasingly sophisticated financial marketplace, which could actually help reduce the federal lending role.

Government forays into this realm are typically driven by a desire to extend the lending frontier, thereby achieving societal gains, by either closing information gap about borrower creditworthiness or by providing an explicit subsidy to borrowers who likely would not be granted a loan even if a private lender had full information. The government can increase credit availability under either of those conditions because, unlike private lenders, it is able to offer loans without regard for profit. Read More »

The Case for Evidence in Government – Doug Criscitello

Doug Criscitello, Executive Director of MIT’s Center for Finance and Policy

Doug Criscitello, Executive Director of MIT’s Center for Finance and Policy

From Government Executive

Although the U.S. government presides over what collectively must be one of the world’s largest data repositories, its capacity to use that data to build citizen trust and make informed, evidence-based decisions is severely constrained. As explained in an enlightening report recently issued by the bipartisan Commission on Evidence-Based Policymaking (CEP), the mere existence of data is a necessary but not sufficient condition for creating empirical evidence to inform decisions throughout the full lifecycle of public programs—enactment, funding, operation, reform, termination.

The digitization of many facets of various activities the government funds through its $4 trillion annual budget has resulted in a data explosion at federal agencies. But that data needs to be synthesized into actionable information to satisfy taxpayers’ demands for better results and greater transparency. The CEP report makes clear that much remains to be done to achieve that goal and provides a comprehensive plan to improve access to federal data, strengthen privacy protections and expand the public, private and academic research communities’ capacity to analyze data.

CEP provides an insightful list of recommendations such as establishing a National Secure Data Service to enable and leverage capabilities across government, addressing statutory impediments that obstruct smart data use, and streamlining processes used to grant researchers access to data. The report appropriately emphasizes strong privacy protections and advocates for comprehensive risk assessments for publicly released data and for the use of better technology and greater coordination across government. To prioritize efficient evidence building, CEP points out the need to coordinate statistical activities, evaluation and policy research within and between departments and across levels of government.

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Will your bank be on your side if it gets hit with a cyberattack? – Doug Criscitello

Doug Criscitello, Executive Director of MIT’s Center for Finance and Policy

Doug Criscitello, Executive Director of MIT’s Center for Finance and Policy

From The Hill

In a recent column, I discussed cyber risks that could adversely affect bank and brokerage customers and explored the conditions necessary for development of actuarially sound insurance products at the retail level to protect individuals from the most catastrophic of cyberattacks to their accounts.

While new consumer-oriented insurance products are being offered to guard against cyberattacks, they don’t necessarily mitigate a consumer’s nightmare scenario. That scenario goes beyond having personally identifiable information stolen to having your bank’s digital records wiped out or otherwise corrupted by a malicious actor, eliminating any history of your account balances. So this is the question: would your bank or brokerage stand by you in the event of such an attack or is cyber risk insurance necessary?

Regardless of the availability of cyber risk insurance for individuals, the threat to consumers flows from vulnerabilities within and across financial institutions. To the extent an individual’s bank or other financial services provider has strong institutional defenses, risk to individuals falls dramatically.

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Can cybersecurity insurance protect consumers from attacks?–Doug Criscitello

Doug Criscitello, Executive Director of MIT’s Center for Finance and Policy

Doug Criscitello, Executive Director of MIT’s Center for Finance and Policy

From The Hill

As we move beyond the widespread acceptance and use of online banking and trading platforms and push further into an increasingly digital financial marketplace, consumers face new forms of risk—namely, cyber risk—that would have been unfathomable previously. When confronted with risks that could be financially devastating, consumers are driven to mitigate and insure against such perils. Has the time come to purchase insurance for financial cyber risks?

Rational consumers seek to prevent, minimize or avoid adverse financial outcomes by purchasing insurance to protect against actual and perceived risks they can’t easily afford. Insurance essentially serves as a risk management and wealth preservation tool. However, consumers realize that it doesn’t make sense to purchase insurance when the cost of coverage is so high that they will pay substantially more in premiums than expected losses. In other words, they decide that self-insuring is the more cost-effective alternative.

Individuals today are increasingly concerned about their online security but don’t have a clear understanding of the amorphous yet perilous risks they face. In response, new consumer-directed insurance products are being offered to guard against cyber attacks.

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Building trust in a government through a 21st century approach to financial management–Doug Criscitello

Doug Criscitello, Executive Director of MIT’s Center for Finance and Policy

Doug Criscitello, Executive Director of MIT’s Center for Finance and Policy

From MIT Golub Center for Finance and Policy

As the keynote speaker at a recent conference of the International Consortium on Government Financial Management held in Washington DC, I had the opportunity to discuss with representatives from over 40 countries one of the primary challenges facing governments around the world – citizen engagement.

My remarks emphasized that recent populist movements should be a wake up call to everyone involved in government – including those in the budgeting and finance communities – on the need to turn citizen cynicism into engagement and buy-in.

The growing availability of technology and data should be enabling a highly informed citizenry (i.e., voters) armed with actionable information. Moving beyond tired factory-like mindsets where government financial staff spend their days grinding out reports, preparing audit remediation plans and manually executing budgets, a modern approach enables technology to drive iterative, customer-focused engagement and creates and marshals electronic resources.

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